President Hassan Rouhani’s attempts to reform the oil sector in Iran are essential for the Iranian economy but are facing steadfast opposition.
On January 30, hardline students gathered outside the oil ministry in Tehran to protest against a proposed new legal framework for the industry. At the end of November, Rouhani’s government had proposed extensive changes to the regulation of oil production, seeking to make investment in Iran more attractive to international companies. Read more
In the spring of 1987, I flew to Moscow with a team of several dozen US officials to negotiate what would become the last trade and economic agreement between the United States and the Soviet Union. In reality, it became a bit of a blueprint in addressing the privatisation of the Russian economic system under then General Secretary of the Soviet Socialist Republics Mikhail Gorbechev. Over the course of several days the Soviet and US teams addressed most sectors of the economy from finance and tourism to legal structures and manufacturing. Although our approach was far from perfect, it laid a foundation, along with perestroika and glasnost, that allowed Russia to prosper for more than 25 years.
Since that time, I have watched as Russia has gone from state-centric decay, to black-market driven. I have seen the system devolve from broken socialist idealism, to rampant capitalist greed run amok. Read more
The US is not the only country holding primaries for a position of world leadership. In Bulgaria, a fierce battle is under way over who will be the country’s candidate to succeed Ban Ki-moon as UN Secretary General at the end of this year.
The outside world is taking notice because the post is slated to go to Eastern Europe under the UN’s informal policy of rotation and Bulgaria is one of the few countries in the region capable of proposing someone trusted by all of the UN Security Council’s veto-wielding permanent members (the P5). The problem is that, unlike the US election, there is no process, no open debate and no way of knowing how or when a decision will be taken. Read more
The first month of the New Year did little to lift the clouds of economic and business concern over emerging markets, especially in Asia. Volatility, uncertainty — even fear — rattled markets, boardrooms and C-suites. And with good reason: the price of oil plummeted, other commodity prices gyrated, China’s Shanghai Composite Index lost almost 25 per cent, and Hong Kong’s Hang Seng and the Singapore Straits Times indices fell about 10 per cent each. Across the Pacific, only the JSX Index in Indonesia and Thailand’s SET showed gains for the month, and they were both less than 1 per cent.
In the midst of this latest turbulence, multinational companies (MNCs) are asking — again — whether it’s time to retreat or reassess. We think that’s the wrong question. Read more
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Investors’ attention remains focused on the minutiae of central bank policies in the developed world. But they might spare a thought for developments in China’s lending policies.
The implications of these dwarf anything being considered in Tokyo, Frankfurt, London or Washington, as the chart below highlights. It shows the changes since 2008 in official and shadow lending, which together constitute China’s total social financing (TSF). Read more
The refugee crisis triggered by the civil war in Syria is a challenge of huge proportions. Providing shelter to refugees is an ethical obligation and a requirement under international law. However, refugees pose large economic, social and political challenges for the host communities. In the face of the strong inflow and the multi-fold strains it causes, more and more people are asking, “Can we handle this?”
Failure to address the issue will only make the crisis worse – for the refugees and the recipient countries too. And time is pressing. Read more
Iran’s Shah Mosque – a masterpiece of Persian and Islamic architecture – is renowned for the shimmer of its tilework. There is also, undoubtedly, a brilliant shine to the prospect of Iran being reconnected to the world economy and of becoming the next major emerging market. As an investment destination, Iran’s potential is plain for all to see: a population of 80m people with 60 per cent under the age of 30, the world’s third largest oil and gas reserves, a wealth of other mineral resources, and an economy almost 20 per cent larger than that of South Africa. Iran’s economy is also relatively diversified, making the country’s $100bn stock market an attractive prospect for investors.
Having reached Implementation Day on January 16, the pressing question now is whether Iran can live up to its potential and overcome a range of underlying structural challenges. The litany of existing problems is extensive: weak corporate governance, a cumbersome and inefficient bureaucracy, high levels of political interference and a lack of investor protections. Read more
The second round of Haiti’s presidential elections, already plagued by low turnout, violence and fraud allegations, has been postponed indefinitely for “security reasons”, according to the electoral council.
The delay coincides with the sixth anniversary of the country’s devastating earthquake and with rising “aid fatigue” over political and economic setbacks.
Michel Martelly, the outgoing president, had hoped to hand over power in February to his designated successor. But opposition parties have been unable to unite behind Jude Celestin, the rival candidate, despite joint condemnation of the voting process. Celestin recently said he would boycott the election. Read more
By Gordon French, HSBC
China’s “Belt and Road” infrastructure investment drive will help boost the flow of physical goods across large swathes of Eurasia, southern Asia and even parts of Africa and the Middle East. Less obvious is the impact that the vast amount of spending linked to the initiative will have in the financial arena – in the currency and bond markets in Asia and beyond.
First announced in 2013, the “Belt and Road” initiative is an essential part of China’s domestic economic rebalancing, and of its outbound ambitions. The initiative entails ploughing billions of dollars into the hardware – railways, highways and ports – that links mainland China and the dozens of countries to its west and south. The goal is to encourage more cross-border trade while putting excess capacities to work. Read more
Emerging market investors have little to cheer about these days. EM currencies are falling, corporate debt is rising, and economic growth, to say it with Christine Lagarde’s words, is “cause for concern”.
But that shouldn’t stop venture capitalists and private equity investors from making a bullish bet on EM entrepreneurs. Why? Because, Turkish-American author Elmira Bayrasli writes in her book From The Other Side of The World, “the next great innovator – the next Steve Jobs – won’t be from Silicon Valley, but from Mexico, Nigeria, Pakistan or Turkey”. What makes her so sure of that? Read more
There is no bigger or costlier mismatch between science and economics than on climate change. Scientists have for years seen environmental degradation and the resulting global warming as the biggest known threat to economic well-being. Yet economists have not integrated climate change and the environment in growth accounting that underpins welfare economics, nor recognized that the carbon intensity of economic activities is a roadblock to sustaining economic growth.
This neglect has grave consequences for sustaining prosperity, the agreements at the Paris climate summit notwithstanding. Indeed, progress will be severely compromised unless economists build in low-carbon measures in the policies and investments they routinely promote around the world. Even if belatedly, the economics profession must act. Read more
A confusion between a nominal global GDP adjustment and a real global GDP slowdown is at the root of the market disarray we are seeing these days. While they are indistinguishable for companies in the short run, they have deeply different implications for the outlook of the global economy, for policymaking, and for markets.
While doomsayers talk about a global slowdown or secular stagnation, what is true is that real global GDP barely decelerated last year (from 3.4 per cent growth in 2014 to 3.1 per cent in 2015 according to the IMF) and will somewhat re-accelerate this year (to 3.4 per cent again). Even if China’s figures are overstated, it is difficult to argue the global economy is in a real slump like 2009, when the economy slowed down by more than 3 percentage points from 2008, and by more than 5 pp compared with 2007. What is going on, then, to make everyone so pessimistic? Read more
Turkey’s president, Recep Tayyip Erdogan, and his ruling Justice and Development Party (AKP) say they wish to push for a new constitutional system, arguing that the current document has, according to one presidential aide, “lost its essence and become full of details”.
Yet while constitutions tend to use broad strokes to outline how a government should operate, in a pluralistic society they also require the detail that only a codified bill of rights can provide. Read more
By Hayden Briscoe and Anthony Chan, AllianceBernstein
The liberalisation of China’s currency and capital account is under threat as the renminbi falls, capital outflows intensify and foreign reserves dwindle. Will the country forge ahead with its reforms or pause to allow the market to settle down? Both, in our view, have their pros and cons.
China’s policymakers face a major conundrum: as the renminbi’s volatility has increased, capital outflows have intensified and depletion of foreign reserves has accelerated (down some $663bn from their June 2014 peak) as a result of market intervention to stem the renminbi’s precipitous decline.
Consequently, Beijing needs to address the “impossible trinity” problem — that is, the fact that no government can control interest and exchange rates while allowing free capital flows. Read more
The Chinese are watching a new storm unfold in their financial markets, only months after being bombarded with news of their country’s “historical victory” when the renminbi was designated an official reserve currency under the IMF’s SDR regime in November.
Inclusion in the SDR has turned out to be a pyrrhic victory, as China’s capital outflows have only accelerated. China lost as much as $108bn in foreign reserves in December, despite a record trade surplus of over $60bn. From a peak of nearly $4tn a year and a half ago, it is now left with $3.33tn in foreign reserves. Read more
Recent political and economic developments have done little to make the case for investing in Brazil. A gargantuan corruption scandal involving Petrobras, the state-controlled oil company, has ensnared politicians and CEOs alike, ravaging confidence and investment in an economy already reeling from low commodity prices.
The economy is contracting at a 4.5 per cent annual rate, twice that seen during the global financial crisis. Unemployment has leapt to 7.5 per cent and inflation has surpassed 10 per cent. President Dilma Rousseff’s popularity rating has plummeted to 12 per cent, barely a year after a narrow re-election victory. Read more
Change is needed to spur economic stability in Africa. Effective public sector entities require transparency, accountability and more honest decision-making. Enhanced financial reporting – accrual accounting – will help African governments develop policies and programmes that deliver sustainable, resilient public services and stronger economies.
Cash-based accounting — used by many governments in the region — only goes so far. Accrual accounting means more accurate identification, measurement, recording and management of assets and liabilities. It means better, more informed decision-making and reduced fraud and corruption. In this environment, citizens are the ultimate winners. Read more
Despite estimates from organizations such as the IMF and the United Nations Office on Drugs and Crime (UNODC), it is impossible to know exactly how much money is “legalised” every year. They put the sum between 2 and 5 per cent of the global GDP; if so, around $2.5tn was laundered in 2014, more than the GDP of the Russian Federation, India, Italy or Brazil. The tragedy for the world is that these vast sums come from some of the most insidious crimes: the trafficking of women and children, drug smuggling, illegal arms sales and the funding of terrorist organizations.
This is big business and it presents all of us in the frontier and emerging markets in Africa, in particular, with a difficult reality. Illegal transactions or financial discrepancies can take place anywhere in the world. There is, however, a lower risk of detection in African countries because our compliance programmes are often not as robust as they should be and in some cases simply ineffective. Read more
The recent inclusion of the renminbi in the IMF’s Special Drawing Rights is a major victory for the People’s Bank of China, which for years has claimed that the Chinese currency deserves to be in the club of top reserve currencies.
It is also a victory for the Europeans, who after the global financial crisis departed from the tough line advocated by the US, arguing that the RMB should be included in the SDR even though China applies controls on its capital account and intervenes massively in the exchange rate. The view in Berlin, Paris and London is that China has implemented a number of liberalising reforms over the past years, which should be rewarded and further encouraged. Read more